Study booster-Thinking about Efficiency

THINKING ABOUT EFFICIENCY


AN EFFICIENT MARKET MAXIMIZES TOTAL CONSUMER AND
PRODUCER SURPLUS.



LEARNING OBJECTIVE


DEFINE ECONOMIC EFFICIENCY.



KEY POINTS


• ECONOMISTS ASSUME THAT FIRMS SEEK TO MAXIMIZE
THEIR PROFITS - DEFINED AS THE DIFFERENCE BETWEEN
TOTAL REVENUE AND TOTAL COST - WHILE CONSUMERS
SEEK TO MAXIMIZE THEIR UTILITY - WHICH IS ROUGHLY
DEFINED AS THE TOTAL SATISFACTION GAINED FROM
GOODS, SERVICES, OR ACTIONS.


• AN EFFICIENT ALLOCATION OF RESOURCES MAXIMIZES
TOTAL CONSUMER AND PRODUCER SURPLUS.


• BECAUSE THEY PRODUCE EFFICIENT OUTCOMES, THE
SEEMINGLY HAPHAZARD WORKINGS OF THE
MARKETPLACE CAN PROMOTE THE COMMON GOOD.


• EFFICIENCY IS BUT ONE OF MANY VYING GOALS IN AN
ECONOMIC SYSTEM, AND DIFFERENT NOTIONS OF
EFFICIENCY MAY BE COMPLEMENTARY OR MAY BE AT
ODDS.